Digital Markets, Competition and Consumers Bill – in a Public Bill Committee am 2:01 pm ar 15 Mehefin 2023.
Thank you very much for coming, and welcome. We will now hear oral evidence from Tom Morrison-Bell, Government affairs and public policy manager at Google. We have until 2.45 pm. Could the witness please introduce himself for the record?
Q Thank you very much for coming to give evidence today. A 2019 Competition and Markets Authority report found that Google enjoyed over a 90% share in the search advertising market in the UK. Would you accept the argument that such a significant market share is to all intents and purposes a monopoly that hinders growth and innovation?
Tom Morrison-Bell:
Thank you for the question. Let me just take a step back and look at how search and this question fit in with the current regime. A huge amount of consumer benefit comes from products such as Google Search. By and large, Google’s products are free, and there are also paid services that support around 700,000 small businesses in the UK. If you look at the financial aspects of search—so, advertising—the revenues generated are in a very small subsection of that. The market might be e-commerce or retail, for example, rather than general search. If you look at retail—people will place an ad next to a keyword such as “buy trainers”—you will see in the market that most retail searches do not start on Google Search. Also, advertising revenues on other e-commerce platforms are growing much faster than Google. So it is important to understand it specifically: yes, there is a general search engine, but in the case of markets, that can often be a different story.
Q I want to understand whether you accept that there is a problem with the effective monopoly. In terms of growth and innovation in the sector, I am keen to understand whether you have a view about some of the evidence, which you may have heard, that constraints are effectively a hindrance to innovation. One example, which we have just heard, is about the ways in which other payment systems are prohibited and about the costs associated with having apps in Google. Are some of those behaviours, and the way in which Google is interacting, inhibiting innovation and costing the consumer more in turn?
Tom Morrison-Bell:
With respect, I do believe that Google is one of the most innovative companies and largest investors in innovation. Between 2018 and 2022, Google spent $145 billion on research and development. That includes amazing stuff that happens here in the UK. For example, Google DeepMind, which is probably the world’s foremost artificial intelligence research institute, is based here and is solving incredible problems such as protein folding.
Q I accept and recognise the innovation that Google brings. The Bill is addressing specific issues around market power and the dominance of big tech. Perhaps you could give us your more general views about the Bill and what your concerns are.
Tom Morrison-Bell:
Yes, I can. I am happy to touch on some of those issues with regard to the Bill. As you will have heard by now, the Bill gives very extensive powers to the DMU that will be highly discretionary and very open-ended. That is how the Bill has been drafted. In Google’s case, those will be powers to direct how complex products are designed, and critically the regime will be forward-looking rather than backward-looking, which is how traditional competition policy works. As I have said, Google’s products and services drive a huge amount of consumer benefit in the UK, and these markets are fast-moving and complex.
With the Bill specifically, our key point is that in relation to products that provide a substantial amount of consumer benefit, that are innovative and that are complex, it is important that these very open-ended powers for the regulator have appropriate checks and balances. I wanted to bring to the Committee three specific areas in which we think the Bill can be strengthened. I am sure that you will have heard about these in other sessions.
First, I think there are strong grounds for making sure that the appeals standard is aligned with that in the Competition Act 1998, which is appeal on the merits as opposed to judicial review. Secondly, the Bill should ensure that consumer benefits can appropriately be considered by the regulator in the regime by adding a bit more coherence to the way the countervailing benefits exemption is constructed. Thirdly, one of the really innovative things that is designed to drive the Government’s ambition of ensuring that it is a speedy regime with innovation at its heart is this idea of a participative approach, whereby all parties involved in the market are encouraged into dialogue with the regulator.
One thing that the Bill provides for is for private cases to be brought before the digital markets unit has found any breach of a requirement on a firm. If that is the case, we think it is important that the digital markets unit is given the opportunity to make the decision first. Otherwise, there is a risk of the courts deciding something and the digital markets unit deciding something else, so that we end up with potentially conflicting compliance requirements on regulated firms.
Q I will finish with this question, because I am conscious that colleagues want to come in. In terms of the participative approach, I have cited before the CMA’s dialogue with Google over the Privacy Sandbox policy and their reaching an agreement on how to move forward. I cite that as an example of how the participative process has worked.
I want to come back to a specific point. You have talked about consumer benefit, and I think we all see the consumer benefit that can and does come from the innovation of Google. However, given your dominance and market power, do you accept that the way in which Google works with other companies is actually contributing to consumer harm as well?
Tom Morrison-Bell:
As a general statement, no: I would not agree with that, straight up. We deliver huge amounts of consumer benefit. There are numerous areas where we are and have been in dialogue with the CMA. We really want to continue to be able to deliver that.
Q So you do not accept any of the examples we have heard of consumer harm.
Tom Morrison-Bell:
Well, I think there are some things to unpack. For example, payment systems have been mentioned. We have agreed commitments with the CMA—I believe they are out to market testing at the moment—on offering a range of payment systems. When it comes to app stores, 99% of app users pay 15% or less on fees. There are important details here.
Q Tom, it is good to see you. Thank you very much for coming in front of us. We have had some quite punchy evidence sessions before this, so it is important that we get a balanced view. Obviously you are not here to speak for all of big tech and everything that has been going on. Let me give you a minute or two to give the other side of the argument about how you are benefiting, as you see it, the kinds of companies represented in the previous session and in the session before that.
Tom Morrison-Bell:
Generally speaking, Google is estimated to provide around £55 billion of economic activity a year in the UK, as a starting figure. We have multiple products. It depends where you look. Workspace is our productivity suite, with word processing and similar, and is estimated to have saved 600 million hours for workers around the UK through more effective communication and speedier software. As I have said, tools like search and maps are free, and they also support businesses across the country to be more effective. That drives £55 billion in economic activity.
There is also our Play store. Android is open source and a free operating system that is available free to mobile device manufacturers, and they can make their own versions. That has substantially driven down the cost of handsets around the world and has been a huge contributor to making sure that people can have access to the internet at lower rates. The Play store itself is estimated to support about 240,000 developer jobs in the UK alone. That drives revenues for them of about £2.8 billion. Across the board, there is substantial benefit.
Q I know that you are broadly supportive of the Bill, although there are areas that you disagree with. Could you address the comments in our previous evidence sessions that were aimed specifically at Google? Until the Bill is passed, what can you do in the meantime to start addressing some of those issues?
Tom Morrison-Bell:
There are two things there. First, what is most important about the regime is that consumers are at the heart of it, and that it is for the regulator, with the powers that it is given, to make the assessments as to whether practices are pro-consumer or not.
What we also think is important is that on one side we have very large and open-ended powers, with products and markets that drive a lot of consumer benefit, and on the other a need for more robust checks and balances to ensure that consumers really are at the heart of the regime. In a sense, it is less about what company X says about company Y than about the coherence of a regime to ensure that consumers are at its heart and that the Government’s ambition for driving innovation without blanket requirements on firms or unduly burdensome regulation is realised.
Q I have a final question on appeals. You talked about full merits. I understand the need to get the balance right in being fair to both sides, but how do you answer the charge? My biggest fear about the consistent level of JR is whether it is just used to kick things down the road, before starting on full merits, as we heard on Tuesday about the significant element of competition law from a competition expert. Basically, it would be used to outspend and outbox opponents.
Tom Morrison-Bell:
Of course. There are two questions about appeals to address. One is speed, which I will come to, and the other is why there are good, principled reasons for that being the right standard.
As I said, the Competition Act has appeal on the merits as the appeal standard. These interventions are much more akin to what the Competition Act does. In both 2013 and 2019, the Government consulted on whether to lower the threshold in the Competition Act to judicial review. In both cases, it was decided not to do so. Indeed, in 2013, the competition appeal tribunal itself made a submission that that would not be appropriate, because it had seen cases overturned or sent back to the CMA.
Furthermore, in recent weeks, an interesting paper by the former head of the Government Legal Service, Sir Jonathan Jones, appeared as a law article. He said specifically with regard to the DMU that, with those very open-ended powers on the one side, the current proposals—his quote, not ours—give rise to “concerns about due process”, because of the imbalance. There are strong and principled reasons why.
There is also the speed point, which needs to be addressed. That is in line with the regime and, as when we worked on the Privacy Sandbox, we want this to be a speedy regime, to accelerate it. We have shown good will in real examples of how we have tried to make that participative approach work. But there are other existing regimes in which, by and large, the CMA is given time limits to which it has to respond. That is evident in gas or electricity prices, postal services, civil aviation, parts of financial services, parts of water and numerous other precedents in the UK of time-limited appeals. There is, however, scope to ensure that we end up with consumers at the heart. It is important—these are complex products—that at the end of the day we are able to have a system in which someone can scrutinise whether the decisions are right or wrong for consumers and companies. It is not just about whether due process has been followed.
Q No doubt you are right that there are consumer and business benefits from what Google does, so thank you for the investment you made to ensure that that is the case. We will always intervene—or we should intervene—where there is market failure. We believe that there is market failure in certain areas here, so this is in that context.
On innovation, we are keen that you continue your R&D spend and innovate. Is there anything in the Bill that will make you think twice about innovation? We asked other witnesses and they cannot see any issue, but some concerns have been raised with us. Do you feel that you might have to talk to the regulator or CMA before you develop a new product? Is that a rational concern that you have?
Tom Morrison-Bell:
The Privacy Sandbox is probably the best example of perhaps any company, as far as I am aware. That is the only model to date that could be a bit like the participative approach. That is a really good example of where we were able to come to the regulator to say, “Look, when it comes to competition, there are trade-offs. In this case, it is privacy, with us phasing out cookies, with competition, because maybe you have to use different Google advertising technologies.” We would like the competition authority and the privacy authority to make sure that both their concerns are met before we roll things out. That is good, because it prevents costly roll-outs that might have to be rolled back, and regulators are aware, consumers have clarity and other businesses in the ecosystem have clarity as well. It is true that that required numerous months of consultation with the regulator, but I think there is the opportunity for the participative approach to work well. Again, because you have this open-ended and flexible system, it is important that there are checks and balances in place.
Q I think the question I am trying to ask is: you are not honestly saying that you are going to stop innovating because of this Bill, if becomes an Act?
Tom Morrison-Bell:
No. We are really committed to the UK, which is a special market for us. We employ 6,500 people here. But those checks and balances are important to make sure that you know that your decision is right or wrong, not just whether due process has been followed.
I am sure we all agree that we want to put consumers at the heart of the regime. I want to put to you the very specific and powerful example that we have heard this afternoon, which I do not think you have really answered, from a British start-up in Cornwall selling electronic books. If it does it on an app, it will have to pay up to 30% in payment processing charges, and the payments can be delayed by as much as two months. If it does it with a web-based approach, where there is competition for payment processing—it uses Stripe, for example—it will pay 3% to 4% in processing charges and receive those payments within seven days. How can it possibly be in the best interests of my residents and businesses in Southend-on-Sea not to address that huge distortion in the market, with a huge monopoly and another system where there is more free competitionQ ?
Tom Morrison-Bell:
With respect, I think that if you look at the broader Play system as a whole, 99% of all users of the Play store—those developers—pay 15% or less on their fees. By and large, the fees are staggered. That means that companies that make less money get to enjoy the benefits of the ecosystem in the same way as larger companies, which may pay larger fees.
On the payments point specifically, we are in discussions with the CMA, as I said. There are two different billing models, which are being agreed on and are out for market testing, so there is ongoing discussion in a constructive way with the CMA that will bring forward those two new payment methods.
Q But why do you prohibit other payment providers from operating?
Tom Morrison-Bell:
I do not think we do. This is what the CMA process is going to yield: something called user choice billing or developer choice billing. In developer choice billing, developers can pick their billing system; with user choice billing, it is users who have the choice.
Q So you agree that it needs reform.
Tom Morrison-Bell:
It is being reformed. The developers will have those choices, and those choices are being scrutinised by the CMA to make sure that they are good for consumers, that they are good for companies like the ones you mentioned, and that they are appropriate in the ecosystem.
Q If you are so keen at Google to work with the CMA and other competition authorities to get issues resolved quickly, why did Kelkoo tell us this morning that its issue is unresolved and has been going on since 2009, and why did the EU Commission need to make the announcement today about the investigation into ad tech procedures that it started two years ago, minus a handful of days? It seems to me that Google does not actually get these differences resolved in anything like a timely way.
Tom Morrison-Bell:
I think there are a few things to unpack there. With respect, the Kelkoo case refers to the Google Shopping case with the European Commission. The remedy that was agreed by the European Commission as the competition authority was rolled out by Google in 2017, around 60 days after the finding was heard. The appeals are still going on, because there are different points of law that are being considered, but the remedy—
Q So it is six years of appeals.
Tom Morrison-Bell:
But, importantly, the remedy that was agreed by the Commission has been in place for six years. That is not necessarily going to change if the points of law change. The remedy has been in place for that time, and the courts considered the opinions of various different complainants and Google as part of that appeal process.
Q What about this latest one, on ad tech, which has been going on for two years?
Tom Morrison-Bell:
The Commission’s inquiry process has been going on for two years, rather than a legal process.
Q But I thought that you were trying to say to us that, where there was an issue, you would work to get that resolved really quickly with the competition authorities.
Tom Morrison-Bell:
The proposed participative approach in the UK is different from how the competition system works in Europe.
Order. I am afraid that that brings us to the end of the time allocated for this session. On behalf of the Committee, may I thank our witness for giving evidence today?